The Effects of Strategy-Management Control System Misfits on Firm Performance

Posted: 16 Nov 2009

See all articles by Lindawati Gani

Lindawati Gani

University of Indonesia

Johnny Jermias

Simon Fraser University (SFU) - Beedie School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: November 13, 2009

Abstract

The purpose of this study is to investigate the effects of misfits between business strategy and management control systems on performance. We address the following research question: “Do firms that align their management control systems with the specific requirements of their business strategy perform significantly better than those that do not achieve the required match?” We define a misfit as the degree to which management control systems deviate from empirically derived ’ideal’ configurations for a given type of business strategy. We argue that a misfit between business strategy and management control systems has significantly negative implications on firm performance. Based on a questionnaire survey of executives from 109 banks, we hypothesize and find that the strategy-control systems misfit has a significantly negative correlation with performance using both financial and non-financial measures. In addition, we find that the magnitude of differences in the correlations between misfits and performance are significantly more negative for critical-control systems than for non-critical control systems.

Keywords: Business strategy, management control system, performance, contingency theory, systems approach

JEL Classification: D2, G2, L1, M4

Suggested Citation

Gani, Lindawati and Jermias, Johnny, The Effects of Strategy-Management Control System Misfits on Firm Performance (November 13, 2009). Available at SSRN: https://ssrn.com/abstract=1505643

Lindawati Gani (Contact Author)

University of Indonesia ( email )

Jl. Prof. Sumitro Djojohadikusumo
Depok, DKI 16424
Indonesia

Johnny Jermias

Simon Fraser University (SFU) - Beedie School of Business ( email )

8888 University Drive
Burnaby, British Colombia V5A 1S6
Canada
604-291-4257 (Phone)
604-291-4920 (Fax)

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